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4 July 2019

TIM lines up audacious Open Fiber bid to combat Sky

A chorus of fiber network chatter has been emanating out of the Italian market in recent weeks, all involving incumbent MNO TIM (Telecom Italia Mobile). The latest progression in TIM’s drive into superspeed broadband involves a potential merger of its own fiber assets with those of wholesale operator Open Fiber – owned by state-controlled energy colossus Enel and state lender CDP.

More pressingly, the fiber integration project is perceived as a precursor to TIM instigating a takeover swoop for Open Fiber, which the operator’s advisers have reportedly earmarked cash in the region of €2.2 billion to €2.8 billion, according to local news outlet La Repubblica. Enel currently owns a 50% stake in Open Fiber and in turn took a 9.9% in TIM earlier this year, making the state lender the operator’s second largest shareholder. It’s a confusing state of affairs in a typically turbulent market.

Italy’s heightened interest in building out fiber network infrastructure is interesting considering the country has been a little slow to adjust to OTT video compared with other areas of Europe, while TIM has been forging a roadmap towards HbbTV, so it might seem counterintuitive to be building out fiber so aggressively. Mediaset, its partner firm in the 4G mobile initiative Tivùon, along with state broadcaster RAI, might therefore not be overly impressed with TIM’s fiber exploits – particularly if it ends up splurging some €3 billion on Open Fiber.

Tivùon was created by Mediaset, Telecom Italia and state broadcaster RAI, to give OTT access to the broadcast TV companies which put together TiVu Sat, the free satellite service in Italy similar to Freesat and other European offerings. In early 2015 it added free to air (FTA) catch up TV, but initially Tivùon was mostly paid premium content and is suddenly more like the free YouView or HbbTV in the UK, Germany and France.

On the technical side of the coin, we know Alcatel-Lucent provides a 100 Gbps agile optical network to Telecom Italia to transform its infrastructure and support ultra-broadband internet and TV services, using the Alcatel-Lucent 1830 Photonic Service Switch. Meanwhile Open Fiber uses the Cisco Network Service Orchestrator platform to automate and simplify its operations, allowing it to add, modify and delete services automatically without interrupting the overall service.

It’s not clear why Tivùon went FTA, but we suggested that Vivendi’s imminent takeover of Mediaset Premium meant Vivendi was getting it to move away from selling premium content to cut off the air supply to Sky Italia, but of course this deal went up in a plume of smoke. The more likely explanation is simply that Italy is trying to embrace OTT, and by OTT we mean Netflix, which launched in Italy in 2015 and has approximately 600,000 subscribers, according to our sister service Rethink TV, a low number by Netflix standards.

But more so than Netflix, we see TIM’s fiber investments as a direct retaliation to Sky which is introducing a dish-free version of its full Sky Q package sometime in 2019 or possibly early 2020, starting with Italy and extending to Germany, Austria, the UK and Ireland. This came about following a deal allowing Sky Italia to access Open Fiber’s FTTH network in April 2018. Could TIM’s investment in Open Fiber spell bad news for Sky?

The operator’s pay TV service Sky Q will be delivered over fiber, bringing next-gen features and faster streaming speeds to Italian users with the aim of stemming the flow of subs from pay TV over to OTT. The deal with Open Fiber will bring Sky services over FTTH to 271 urban parts of Italy by 2022 – a sizable project and quite the statement from Sky to its Italian competitors. Particularly as Sky Q over satellite only arrived in Italy back in November 2017.

Discussions between TIM and Open Fiber, which expects to reach 19 million homes and businesses over the next few years, have reportedly been in advanced stages for over a month now.

TIM ended Q1 2019 with 7.4 million broadband accesses, falling by 170,000 year on year. Some TIM shareholders want the company to spin off its fixed line network and operations and merge those with Open Fiber and Gubitosi has been pursuing this idea with the support of activist investor Elliott, but faces opposition from Vivendi, the telco’s largest single shareholder.